Chapter quiz on material cost

Cost/Management Accounting notes

1. List four stock control systems

2. List the advantages of FIFO method

3. Write down the EOQ formula
1. Stock control systems

• ABC System
• Periodic order system
• Continuous review system
• Just in time inventory system

2. Advantages of FIFO method

• It is a logical pricing method which probably represents what is happening in practice: oldest items are usually issued first out.
• Unrealized profits or losses do not arise at the end of period. Materials are issued at the same price as that at which they were acquired hence no profit or loss arises out of the transaction.
• It is easy to understand. It is also easy to calculate if prices of materials don’t fluctuate
• Closing stocks values reflect the latest costs thus tend to reflect the current market values.
• It is acceptable to many tax authorities and is also consistent with accounting practices for instance the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS)

Leave a Reply

Your email address will not be published. Required fields are marked *